Jackson County has been down this road before, but that isn’t stopping leaders from taking another look at forming a local economic development commission.

Or, to be more precise, reconstituting the county’s current Economic Development Commission.

“Because technically, there is an EDC in Jackson County,” County Manager Chuck Wooten said.

The county’s current EDC exists in name only, however. It has an office but no director. By-laws but no members. A mission statement but no budget.

The former EDC, which functioned as an independent entity outside county oversight, went defunct in 2005 amid controversy and allegations of financial mismanagement. Three years later, county commissioners formed a new EDC, this time under county control although representatives of each town had seats at the table.

The new attempt fell apart after less than a year, however. The director resigned. The board quit meeting. Members resigned one by one, and neither the county nor towns appointed replacements to fill their seats.

While the EDC technically exists on paper and could be restarted at any time by simply making fresh appointments to the board, Wooten believes that the county’s phantom EDC should probably be dissolved because of what he termed “bad connotations for people.” But, something needs to take its place to spur economic development in Jackson, the county manager said.

A joint meeting of county and town leaders is set for March 5 to discuss the topic. Sylva town board member Harold Hensley, for one, is happy that the county is initiating work again on the economic front.

“I know there’s been a lot of controversy about the EDC,” Hensley said. “But, I think that it could be a good thing if it is run right.”

Hensley emphasized that he’s uncertain in his own mind whether the same EDC structure used previously in Jackson County should be tried again, however.

Dillsboro Mayor Mike Fitzgerald also said he’s pleased county leaders are moving toward formal economic development efforts. But, like Hensley, he was unsure about the form he’d want to see such an effort take.

“But, it needs to be investigated,” Fitzgerald said.

Rough history for EDC

When it comes to EDC boards, Jackson County’s version is extremely unusual among counties in Western North Carolina. While most EDC’s are county-led entities, Jackson County has included town leaders in economic efforts with their own seats on the board. Wooten said he still believes that “you do need to have the municipalities at the table.”

When the EDC was thrust into turmoil in 2005 amid allegations of financial mismanagement and a lack of oversight, town representatives remained at the table even though the county pulled out. It limped along until the county opted to become re-involved.

When the board was reconstituted with a new set of bylaws, a power struggle played out between the county and the towns over who would hold the most authority. Even though the amounts of money being contributed by the county and town to the “joint” effort were disproportionate.

Jackson County kicked in $105,000 for economic development efforts. Each town put in just $1 for each resident, amounting to a few hundred for Dillsboro, Webster and Forest Hills, and $2,500 for Sylva.

The county’s new EDC director, Dorothea Megow-Dowling, resigned after less than a year, calling the entity dysfunctional. She said the county missed an opportunity by agreeing to reconstitute the board under the same structure rather than dissolving the EDC and creating a new one from scratch.

In response, the then-mayors of Sylva and Dillsboro accused the county of stripping the EDC board of its power and relegating it to a mere advisory role. Additionally, EDC ghosts from the not-so-distant past continued to haunt this newest reconstitution.

A watchdog group called Jackson County Citizens Action Group dogged the county and the members of the EDC, accusing them of financial cover-ups and a lack of diligence in safeguarding public funds.

It remains to be seen what exactly Jackson County and the four towns will do this time around.

Supporters of Jackson County’s revolving loan program describe the financial give-outs as a tool in the county’s economic toolbelt, a boost to deserving businesses that can’t receive critical, even lifesaving, financial help through banks.

But five defaults since 1993 when the loans started, out of a total of nine loans, raises serious questions about the program.

It’s been awfully easy — too easy, county leaders admit — for businesses in Jackson County to get loans without providing adequate collateral should the company go under.

Jackson has flat-out lost $525,000 since starting the program because of businesses folding. Another $420,000 is on the line, with the exact losses depending how much the county can recoup from selling off collateral.

“It is not just a gift or a grant,” said Jackson County Chairman Jack Debnam, who has strongly advocated for stiffer loan restrictions. “If it is a grant, call it a grant. If it’s a loan, certain criteria should be met.”

The revolving loan fund is nowhere close to being tapped out. Despite having $820,000 in outstanding loans, there is another $756,000 in the kitty.

Revolving loans are generally considered high risk, used to help start-ups or struggling businesses with an injection of capital when banks won’t. But those needing that help most are generally the least able to afford payback. That has certainly been Jackson County’s experience.

How loose has Jackson County’s definition of collateral been? The worst-case example involves QC Apparel. When the company recently went belly up after years of protracted sinking, Jackson County found itself the proud possessor of $5,000 worth of sewing machines.

Board minutes from August 2006 show the board of commissioners at the time agreed to let the textile manufacturer, which made such goods as pillowcases and bed-in-a-bag materials, off the hook. In a restructuring of the company’s loan, commissioners voted to release the house of QC’s owner Clemmy Queen as collateral in favor of the company’s equipment.

Now the county is about to sell these used machines at what will inevitably prove less — a lot less — than the money owed, according to Jackson County Manager Chuck Wooten.

QC Apparel owes Jackson County a total of $426,000 in loan money and back rent for space at the now county-owned former Tuckasegee Mills building. Given the estimated $5,000 value of the sewing machines, the county is left with a large difference to write off.

The latest company to default on its revolving loan with the county is Metrostat, a small Internet service provider. The company announced it would close three months ago and could not pay back some $250,000 in outstanding loans it owed the county and town of Sylva.

Metrostat had put up fiber optic lines as collateral, and the county and town are in process of selling off those fiber lines— but they won’t recoup the full balance owed on the loan.

The county might also find itself in possession of equipment for making biodiesel due because of a default by Smoky Mountain Biofuels.

But the county hasn’t totally curbed its appetite for non-standard collateral. When making a $289,000 loan to an AM radio station last month, the county agreed in principle to accept the federal license of the radio frequency as the primary collateral backing the loan. Federal regulations prohibit frequencies from being put as collateral, however, so the county is working with the prospective station owner to find a substitute.

Another county, more revolving loans

Now another local government wants to get in the revolving loan business. Macon County is considering instituting a program of its own, ostensibly to boost the creation and staying power of local businesses. And, just as in Jackson County, leaders there are touting the system as a good method of igniting the engines of economic development. In this weedeater-like two-cylinder economy that once roared at a mighty 10 cylinders (think Ford F-250 pickup truck), any possible forward motion has moths-to-flame attraction for county leaders and business entrepreneurs alike.

“I’m thinking of a business person out there who might want to expand a business, and needs some money to get off the ground,” Macon County Commission Chairman Kevin Corbin told fellow board members during a recent meeting. “Banks aren’t interested in such small loans.”

Macon County Attorney Chester Jones, who was ultimately asked to review possible mechanisms for such a county loan program and report back to the board, cautioned prudence.

“You’ve got to structure the deal so that at the end of the day, the deal will be beneficial to the public,” Jones said.

And that’s exactly what’s in question next door in Jackson County: With that outstanding bill to its revolving loan program of just more than $800,000, supporters are hard pressed to easily defend and explain exactly what the public benefit might be.

Commissioner Joe Cowan, the longest serving commissioner on the board, said he believes the issues date to how and why the revolving loan program was conceived: job creation at any price.

“The whole purpose was to create jobs,” Cowan said. “Whether you made money, you didn’t, or even if you lost a little.”

Over time, Cowan said, people involved in the loan program had different views, and proper collateralization fell by the wayside as job production became ever more emphasized. Loans were extended to businesses that were “fixtures in the county and to good people,” the commissioner said, “but somehow we (the county) just let them get money without sufficient collateral. The county bent over backwards to protect job growth.”

Despite the defaults, county taxpayers aren’t directly losing dollars because of the loans. Money to get the revolving loan fund started from grants. Although the revolving loan fund hasn’t been a drain on the county’s tax coffers, the question remains, however, whether it has done the job as promised: to help build and boost economic development in Jackson County.

Debnam touted Sequoyah Fund’s solid track record and methods of extending loans, which requires prior in-depth scrutiny of an applicant’s financial status, as a possible model for Jackson County. This Eastern Band of Cherokee Indians’ regional loan program has used casino dollars to help provide training and technical assistance to more than 1,000 individuals and extended more than 135 loans totaling almost $4.6 million since 2001.

Controversial history

The revolving loan situation in Jackson County verged on the bizarre in 2005. Commissioners’ relationship with the now defunct Economic Development Commission fractured amid questions about who was in charge of the revolving loan program. There were questions about whether favoritism played roles in some of the loan participants receiving unusually generous loan terms.

Ultimately, deputies were ordered to seize EDC financial records, and an auditor was brought in to review the group’s finances. The auditor eventually concluded the records were too spotty to perform a conclusive audit.

“The whole thing was ill-conceived from the beginning,” said Commissioner Doug Cody of the revolving loan program. “It wasn’t handled in a business-type manner.”

Today, there is no EDC in Jackson County, though there have been signs of resurrection by current commissioners — though probably in an entirely different form and unarguably under commissioners’ oversight and control.

The previous board of commissioners had likewise attempted to jumpstart the EDC, but had modeled the new entity, much like the old one, by sharing control with the towns. It wasn’t long before the newly hired EDC director resigned, claiming the entity was floundering because of a lack of clear structure and mission. The entire effort soon fell by the wayside.

Despite the loan program’s history of woes and current financial shortfalls, commissioners said that they support the concept of a county revolving loan program if the controls are tightened.

“I think it has its place,” said Cody, a fiscally conservative Republican.

Cody supported extending two recent loans made by the county, one to Jackson Paper for $250,000 (the Sequoyah Fund kicked in an additional $250,000) and $110,000 to local resident Roy Burnette who wants to get Sylva radio station WRGC back on the air. The station got an additional loan of $179,000 from the county’s separate economic development fund.

To qualify for the revolving loan fund, businesses must create a minimum of three jobs with a threshold of $10,000 for each job created. The economic development fund doesn’t have a specific job-creation threshold.

The loan to Jackson Paper was to rebuild the wood-fired boiler at the recycled paper manufacturing plant. The terms of the revolving loan was for 10 years at a 3.25 percent interest rate. The collateral is a second lien on 47 acres and buildings in downtown Sylva, which Wooten said last week should adequately cover the county’s financial exposure following any possible default.

The interest rate for Jackson Paper is the same rate as proposed by the Sequoyah Fund so that explains why it is higher, Wooten said.

“I suspect we would have loaned at a lower level if it had involved only Jackson County,” he said.

The county opted to give Burnette his loan at 2 percent interest, but the money isn’t being doled out until the county is satisfied with the collateral being offered. A move to put the county on the FCC license along with Burnette failed when the FCC flatly ruled out the idea. Wooten said he believes other collateral will prove satisfactory to the board, as did Cody.

Wooten knows his numbers: before becoming county manager, he worked for three decades as Western Carolina University’s finance officer. The revolving loan, he said, needs “to be a little more businesslike. This is not ‘angel’ funding.”

And when it comes to the collateral that underpins loans, the county really “does not want sewing machines,” Wooten said. “I do think we need to be conservative. But, it is something in our toolbox.”

Who got what and when? A history of  Jackson’s revolving loan recipients

• August 1993: Hensley-Dean, $28,090. Paid in full June 2001. Out of business.

• May 1995: Q.C. Apparel, $358,355; owes county $425,901. Loan terms renegotiated seven times. Out of business.

• December 1997: Clearwood LLC: $225,000; owes county $80,104. Out of business.

• June 1999: Southern Lumber: $218,000; paid in full July 2008. Out of business. County bought property and the owner used some of those proceeds to pay the loan off.

• May 2001: County Collections: $14,000; balance of $12,157 “written off” by commissioners. Out of business.

• August 2002: CMG, later Fraternal Composite Specialties: $325,000; owes county $82,452. They are current on payments though owing that money.

• November 2004: Metrostat Communications: $250,000; owes county $259,228. Out of business. Assets transferred to county and Town of Sylva to sell off, but likely won’t be enough to cover outstanding balance.

• August 2006: Smoky Mountain Biofuels: $148,000; owes county $160,357. Out of business. Assets and collateral still being determined.

• March 2011: Webster Enterprises: $70,000; owes county $71,158.26. Payments deferred until April 25, 2013.

• Current: A pending $110,000 loan to Roy Burnette in Sylva to get local WRGC back on the air. County still trying to determine appropriate collateral.

• Current: A pending $250,000 loan to Jackson Paper for repair work at the Sylva plant. That loan looks certain to move forward.

Where Jackson’s loan program started

Jackson County’s revolving loan has its genesis in a 1982 Community Development Block Grant for $750,000, a joint effort with the town of Bryson City. Tuckasegee Mills received $738,500 in a loan, and Jackson County received 50 percent of a payback — $553,973.

Another grant for Jackson County for $291,000 enabled a loan to a business for $285,500. Ultimately, the principal from the two grants totaled $654,750 — a nest egg for the revolving loan fund.

The three guiding principles for Jackson’s loan program

• Creation of new job opportunities and the retention of existing jobs … principally for people of low and moderate income.

• To further new business development or expansion within the county.

• To enable private business development that would not take place without loan assistance from the county.

With what they claim is hundreds of thousands in unpaid rent and loans on the line, Jackson County commissioners have ordered three delinquent tenants at county-owned industrial sites to pay up, or else.

Precisely what “or else” means hasn’t been spelled out. But, in a 5-0 vote, commissioners did make clear last week they want the money they believe is owed the county. That would be $92,700 from QC Apparel; $104,550 from Stanton and Stanton; and $83,166.72 from Clearwood Lumber.

The county has been prodding at least two of the industries to pay up since last summer. The former board of commissioners discussed the issue in closed session on more than one occasion.

Their less-than-stellar track record with the county goes back years, however. Their failure to stay current on revolving loan payments portrayed the old Economic Development Commission as being lax in its oversight of the revolving loan fund. That in turn triggered a county takeover of the EDC, but the county hasn’t done much better since it has been at the helm.

In addition to the back rent, QC Apparel has an outstanding revolving loan of $410,094, and hasn’t made a payment since January 2008, interim County Manager Chuck Wooten told commissioners. Clearwood has an outstanding revolving loan of $76,716.87, and hasn’t made a payment since May, he said.

Neither QC Apparel nor Clearwood Lumber returned phone messages seeking comment. Wooten said he had not received a response as of earlier this week to the dunning letters sent to any of the three companies.

Charles Stanton, owner of Stanton and Stanton, told The Smoky Mountain News on Monday that commissioners are mistaken. He does not owe back rent, because his woodworking company put in “a lot of money fixing up the building” per a lease agreement. Stanton said he planned to meet with Wooten this week and attempt to clear up the matter.

Stanton said his company has six full-time employees and six to 12 installers working at any given time under contracts.

QC Apparel and Stanton and Stanton are located in the former Tuckaseigee Mills building on Scotts Creek Road. Clearwood Lumber is in Whittier.

Jackson County Development Corp., a nonprofit arm of the county’s Economic Development Commission, originally purchased Tuckaseigee Mills.

Anyone who thought the discussion over the Jackson County Economic Development Commission’s missing audits was over when the board closed the issue last December got a surprise on Monday night.

Chairman Brian McMahan announced that he had gotten a letter from the North Carolina Department of the Treasurer that cleared the county of the responsibility to produce the missing audits for the EDC for the years between 2002 and 2005.

The county was previously under the assumption the audits were necessary under state law, but an accountant hired to perform the back audits concluded it was an impossible task due to spotty records from the era. The EDC operated as an independent agency without county oversight during those years.

The county sought advice from the Local Government Commission in hopes of clearing the air once and for all.

“We went through a process where we asked the LGC what is the next step?” McMahan said. “How do we complete this obligation?”

That in turn prompted the state treasurer’s department to weigh in. The answer, apparently, was the county needed to get letters from each town that participated in the EDC and from past treasurers then communicate with the district attorney’s office.

“It is my understanding, if I interpret this correctly, that Jackson County is not being required at this time to comply with the audits,” McMahan said.

Controversy over the EDC erupted in 2005 amid allegations of financial mismanagement by its leaders. While the EDC was a separate entity, it relied on funding from the county. Concerned by the lack of oversight of public funds at the disposal of an all-volunteer body, the county decided to withdraw from the EDC and seized the organization’s records. But part of the records either weren’t there to begin with or went missing in the process.

The county tried to enlist the services of two separate auditing firms to help piece together what happened to the EDC’s finances to no avail.

But the commissioners, all but one of whom inherited the EDC fiasco, have received so much criticism over the issue that they apparently felt the need to go further.

Perhaps their most vocal critic has been Sylva resident Marie Leatherwood. Leatherwood has attended nearly every board meeting since May 2007 demanding at each one that someone be held accountable for what she claimed was the inexplicable disappearance of taxpayer money and the records that proved it. Getting to the bottom of the issue has become a crusade for Leatherwood.

McMahan became so exasperated with Leatherwood’s constant criticism that he invited her to present her evidence to the board. Leatherwood declined, saying the material was too sensitive.

At Monday’s meeting, Leatherwood reacted to the new information so strongly that the commissioners were forced to call a recess to escape her harangue.

“I’m not going to accept any ‘We’ve done it all,’” Leatherwood said. “That’s making a liar out of me.”

McMahan resorted to using his gavel to try to maintain order during the outburst. After the recess, Leatherwood left the building escorted by a sheriff’s deputy.

Commissioner Joe Cowan, who was on the board when the EDC controversy first emerged, was dismayed by the scene. Having remained quiet on the issue for months, he took time to reiterate that the county has never been responsible for producing an audit of the entity’s finances.

“We separated ourselves from the EDC. There was no legal responsibility to do anything with that audit in the first place,” Cowan said.

By Jennifer Garlesky • Staff Writer

After working two years as Sylva’s town manager, Jay Denton will be leaving his post Jan. 31 with the hopes of becoming the new executive director for Jackson County’s Economic Development Commission.

An $18,000 marketing study conducted for Jackson County by consultants from Texas fell short of what the firm promised, according to members of the Jackson County Economic Development Commission.

So the economic development commission is asking for its money back.

An overhaul of economic development strategy in Jackson County has temporarily stalled over who will be in charge.

The business sector in Jackson County will benefit from the renewed efforts to establish a working Economic Development Commission.

By Sarah Kucharski • Staff Writer

If there’s one thing economic development officials agree on, it’s that there’s no one right way to do it.

By Sarah Kucharski

In January 2005, Jackson County Commissioners called in more than $1.2 million in loans issued to six local industries, suspended participation in the Economic Development Commission and launched an investigation of the commission’s financial records.